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October

IRS Begins Exchanging Tax Info with Other Countries under FATCA

BY MICHAEL COHN

 

The Internal Revenue Service said Friday it has met a key milestone relating to the Foreign Account Tax Compliance Act, or FATCA, having begun exchanging tax information with certain foreign governments in time to meet a Sept. 30, 2015 deadline.

 

The automatic exchange of account information with tax authorities abroad was part of the intergovernmental agreements that the Treasury Department negotiated with foreign governments in an effort to implement the law.

 

FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions to send the IRS information on the accounts of U.S. taxpayers, or else face stiff penalties of up to 30 percent on their income from U.S. sources. The law has attracted controversy abroad, prompting the Treasury to negotiate agreements with other countries to allow for reciprocal exchange of tax information on both U.S. and foreign taxpayers from both U.S. and foreign banks, in accordance with existing tax treaties to prevent double taxation. In most cases, the agreements allow the banks to first turn over the information to their own countries’ tax authorities before it is handed over to the IRS or a tax authority in another country.

 

To meet the Sept. 30 milestone, the IRS said it developed an information system infrastructure, procedures, and data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the agreements implementing FATCA.

 

“Meeting the Sept. 30 deadline is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements,” said IRS Commissioner John Koskinen in a statement. “FATCA is an important tool against offshore tax evasion, and this is a significant step in the process. The IRS appreciates the assistance of our counterparts in other jurisdictions who have helped to make this  possible.”

 

The information exchange is part of the IRS’s overall efforts to implement FATCA, enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts or foreign entities. FATCA generally requires withholding agents to withhold on certain payments made to foreign financial institutions unless they agree to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

 

In response to the enactment of FATCA and other jurisdictions’ interest in facilitating and participating in the exchange of financial account information, the U.S. government entered into a number of bilateral IGAs that set the groundwork for cooperation between the jurisdictions in this area. Certain IGAs not only enable the IRS to receive this information from FFIs, but also enable, according to the IRS, more efficient exchange by allowing a foreign jurisdiction tax administration to gather the specified information and provide it to the IRS. Some IGAs also require the IRS to reciprocally exchange certain information about accounts maintained by residents of foreign jurisdictions in U.S. financial institutions with their jurisdictions’ tax authorities.

 

Under these reciprocal IGAs, the first exchange had to take place by September 30, giving the IRS a deadline to put in place a process to facilitate this data exchange.

 

The IRS said the information now available provides the United States and its partner jurisdictions an improved means of verifying the tax compliance of taxpayers using offshore banking and investment facilities, and improves detection of those who may attempt to evade reporting the existence of offshore accounts and the income attributable to those accounts.

 

The IRS said it will only engage in reciprocal exchange with foreign jurisdictions that, among other requirements, meet the IRS’s stringent safeguard, privacy, and technical standards.  Before exchanging with a particular jurisdiction, the U.S. conducted detailed reviews of that jurisdiction’s laws and infrastructure concerning the use and protection of taxpayer data, cyber-security capabilities, as well as security practices and procedures.

 

“This groundbreaking effort has fundamentally altered our relationship with tax authorities around the world, giving us all a much stronger hand in fighting illegal tax avoidance and leveling the playing field,” Koskinen said.

 

Meeting the Sept. 30 deadline reflects the agency’s collaboration and partnership with dozens of jurisdictions around the world. The capacity for reciprocal automatic exchange builds on a number of accomplishments, including the development of a consistent data reporting format, or schema, and the agreement to use this format by all jurisdictions; establishment of the details and procedures required to assure data confidentiality; creation of a data transmission system to meet high standards for encryption and security; and cooperation with foreign jurisdiction tax administrations to achieve the timely implementation of this exchange.

 

Koskinen pointed out that the risks of hiding money offshore are growing and the potential rewards are shrinking. Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program, which the IRS said is open until otherwise announced.

 

 

 

Health Coverage Providers: Understanding Minimum Essential Coverage

 

The Affordable Care Act requires any person or organization that provides minimum essential coverage, including employers that provide self-insured group health plans, to report this coverage to the IRS and furnish statements to the covered individuals.

 

These reporting requirements affect:

·      Health insurance issuers or carriers

·      The executive department or agency of a governmental unit that provides coverage under a government-sponsored program

·      Plan sponsors of self-insured group health plan coverage

·      Sponsors of coverage that the Department of Health and Human Services has designated as minimum essential coverage

 

For purposes of reporting by applicable large employers, minimum essential coverage means coverage under an employer-sponsored plan.

 

Minimum essential coverage does not include fixed indemnity coverage, life insurance or dental or vision coverage.

 

Minimum essential coverage does include:

 

Government-sponsored programs

·      Medicare part A, most Medicaid programs, CHIP, most TRICARE, most VA programs, Peace Corps, DOD Non-appropriated Fund Program

 

Employer sponsored coverage

·      In general, any plan that is a group health plan under ERISA, which includes both insured and self-insured health plans. Importantly, employer plans that cover solely excepted benefits, such as stand-alone vision or dental plans, are not MEC

 

Individual market coverage

·      Includes qualified health plans enrolled in through the federally facilitated and state-based marketplaces and most health insurance purchased individually and directly from an insurance company

 

Grandfathered plans

·      Generally, any plan that existed before the ACA became effective and has not changed

 

Miscellaneous MEC

·      Other health benefits coverage recognized by the Department of Health and Human Services as MEC

 

 

 

Year-End Tax-Planning Considerations for Those About to Get Married

BY ROBERT TRINZ

 

As if the process of getting married isn’t complex and difficult enough, prospective spouses also need to take income tax considerations into account before tying the knot.

 

That’s particularly true for those who plan to marry late this year or early next year. From the federal income tax standpoint, those marrying next year may come out ahead by deferring or accelerating income, depending on their circumstances. Others may find it to their advantage to defer a year-end marriage until next year.

 

The timing issue—whether to marry this year or the next—may be particularly relevant for same-sex couples in light of the recent decisions by the Supreme Court. In Obergefell v. Hodges, the Supreme Court held in June that same-sex couples may now exercise the fundamental right to marry in all states. Previously, in the 2013 decisionU.S. v. Windsor, et al, the Supreme Court struck down section 3 of the Defense of Marriage Act, which had required same-sex spouses to be treated as unmarried for purposes of federal law. The IRS subsequently issued guidance on this decision in which it determined that same-sex couples legally married in jurisdictions that recognize their marriages will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes their marriage.

 

Background: The amount of income subject to the two lower tax brackets (10 percent and 15 percent) for married taxpayers filing jointly is exactly twice as large as the amount of such income for single taxpayers. However, the tax brackets above 15 percent cover a larger total amount of income for two single taxpayers than for two taxpayers who are married.

 

For example, in 2015, two unmarried taxpayers can each have $90,750 of taxable income before they hit the 28 percent bracket. On the other hand, if they are married, their combined taxable income over $151,200 will be taxed at a rate starting at 28 percent. Also, on a joint return, the 33 percent rate begins at $230,450, the 35 percent rate starts at $411,500, and the 39.6 percent rate starts at $464,850.

 

On the other hand, two unmarried taxpayers with substantially equal amounts of income can have as much as $378,600 ($189,300 × 2) of taxable income before being in the 33 percent bracket, $823,000 ($411,500 × 2) before being in the 35 percent bracket, and $826,400 ($413,200 × 2) before being in the 39.6 percent bracket.

 

Thus, there is a marriage penalty when, for example, married taxpayers’ combined income will cause part of their income to be taxed at a rate above 25 percent, when none of their income would be taxed at a rate above 25 percent if they filed as single individuals.

 

A taxpayer’s marital status for the entire year is determined as of Dec. 31. A taxpayer who gets married (or divorced) on that date is treated as if he were married (or single) all year long.

Marriage-penalty implications for year-end planning: Those eager to tie the knot as soon as possible should keep in mind that deferring the marriage until next year could save substantial tax dollars. And, where two unmarried taxpayers with substantially equal amounts of taxable income have solidified plans to marry next year, it may pay to accelerate income into this year rather than attempt to defer it until next year.

 

Illustration 1: John and Jess are planning to get married. Jess expects to have $300,000 of taxable income in 2015, and John expects to have $250,000. Their combined taxable income for 2015 will be $550,000. If they get married before 2016, and file a joint return for 2015, they will owe income taxes for 2015 of $163,715.90. If they delay their marriage until 2016, then for 2015, Jess will owe taxes of $82,606.25, and John will owe $66,106.25, for a combined tax of $148,712.50. This will be $15,003.40 less than they would owe if they married in 2015 and filed a joint return for 2015.

 

If John and Jess married in 2015 and filed separate income tax returns for 2015, John would owe income taxes of $71,957.95 on taxable income of $250,000, and Jess would owe income taxes of $91,757.95 on taxable income of $300,000. The combined amount they would owe would be $163,715.90, the same amount they would owe if they filed a joint return for 2015.

 

Marriage bonus implications for year-end planning: If only one of the prospective spouses has substantial income, marriage and the filing of a joint return will usually save taxes, thus resulting in a marriage bonus. In such a case, it will probably be better to defer income until next year if they will be married next year, or, if they are in the planning stage, to accelerate the marriage into this year if feasible.

 

Illustration 2: Same facts as in Illustration 1, except John expects to have taxable income of $25,000 in 2015, and Jess expects to have taxable income of $525,000. If they get married before 2016, and file a joint return for 2015, they will owe income taxes for 2015 of $163,715.90. If they delay their marriage until 2016, then John will owe income taxes of $3,288.75 for 2015, and Jess will owe income taxes of $164,269.05. Their combined income taxes will be $167,577.80 in 2015 if they file as single taxpayers, or $3,841.90 more than they would pay if they filed a joint return for 2015.

 

Depending on the taxpayers’ income, marriage and the filing of a joint return may not only result in a marriage bonus because of the tax-rate structure, but also produce tax savings in the form of bigger deductions based on adjusted gross income, or smaller AGI-based tax hikes. For example, for 2015:

 

• The AGI phaseout for making deductible contributions to traditional IRAs by taxpayers who are active participants in an employer-sponsored retirement plan begins at $98,000 of modified AGI (MAGI) for joint return filers and the deduction is phased out completely at $118,000 of MAGI. For single taxpayers, the phaseout begins at $61,000 of MAGI and is phased out completely at $71,000 of MAGI. And for a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution phases out ratably for MAGI between $183,000 and $193,000.

 

• Individuals may take an above-the-line deduction for up to $2,500 of interest on qualified education loans, but the amount otherwise deductible is reduced ratably at modified AGI between $130,000 and $160,000 on joint returns, and between $65,000 and $80,000 on other returns.

 

• The 3.8 percent investment surtax applies to the lesser of (1) net investment income or (2) the excess of MAGI over the threshold amount of $250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 for other taxpayers.

 

• The additional 0.9 percent Medicare (hospital insurance) tax applies to individuals receiving wages with respect to employment in excess of $250,000 for married couples filing jointly, $125,000 for married couples filing separately, and $200,000 for other taxpayers.

 

Besides the above considerations, couples thinking of marrying should consider there are various tax rules that apply differently to related parties, and that, when one marries, his spouse becomes a related party. For example, there is a rule that doesn’t allow someone to recognize a loss on a sale to a related party. Using that example, a couple may want to consider having an intra-couple sale occur before the marriage takes place.

 

Robert Trinz is a senior analyst with Thomson Reuters Checkpoint within the Tax & Accounting business of Thomson Reuters

 

 

 

How Your Income Affects Your Premium Tax Credit

 

You are allowed a premium tax credit only for health insurance coverage you purchase through the Marketplace for yourself or other members of your tax family. However, to be eligible for the premium tax credit, your household income must be at least 100, but no more than 400 percent of the federal poverty line for your family size. An individual who meets these income requirements must also meet other eligibility criteria.

 

The amount of the premium tax credit is based on a sliding scale, with greater credit amounts available to those with lower incomes.  Based on the estimate from the Marketplace, you can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums.  These payments are called advance payments of the premium tax credit.  If you do not get advance credit payments, you will be responsible for paying the full monthly premium.

 

If the advance credit payments are more than the allowed premium tax credit, you will have to repay some or all the excess.  If your projected household income is close to the 400 percent upper limit, be sure to consider the amount of advance credit payments you choose to have paid on your behalf.  You want to consider this carefully because if your household income on your tax return is 400 percent or more of the federal poverty line for your family size, you will have to repay all of the advance credit payments made on behalf of you and your family members.   

 

For purposes of claiming the premium tax credit for 2014 for residents of the 48 contiguous states or Washington, D.C., the following table outlines household income that is at least 100 percent but no more than 400 percent of the federal poverty line:

 

 Federal Poverty Line for 2014 Returns

 

100% of FPL

.

400% of FPL

One Individual

$11,490

up to

$45,960

Family of two

$15,510

up to

$62,040

Family of four

$23,550

up to

$94,200

 

 

The Department of Health and Human Services provides three federal poverty guidelines: one for residents of the 48 contiguous states and Washington D.C., one for Alaska residents and one for Hawaii residents. For purposes of the premium tax credit, eligibility for a certain year is based on the most recently published set of poverty guidelines at the time of the first day of the annual open enrollment period for coverage for that year. As a result, the premium tax credit for 2014 is based on the guidelines published in 2013. The premium tax credit for coverage in 2015 is based on the 2014 guidelines. You can find all of this information on the HHS website.

 

Use our Interactive Tax Assistant tool to find out if you are eligible for the premium tax credit. For more information, see the instructions to Form 8962 and the Questions and Answers on the Premium Tax Credit on IRS.gov/aca.

 

 

Deloitte Sued for $500 Million by Estate of Ex-Pistons Owner

BY CHRIS DOLMETSCH

 

A Deloitte LLP unit allegedly promised a tax plan under which former Detroit Pistons owner Bill Davidson would “win if he lived, or win if he died.”

 

It didn’t work out that way. Four years after the 2009 death of the multibillionaire, his estate was hit with a $2.7 billion tax bill, according to a lawsuit filed in New York.

 

The estate sued Deloitte Tax LLP Thursday to recover $500 million in taxes, fees and penalties from the adviser.

 

Deloitte Tax failed to disclose the risks of the tax plan that it recommended to Davidson in order to secure him as one of its “marquee clients” who could generate large fees and serve as a “showpiece” to promote its services to other wealthy people, the estate said in the lawsuit.

 

“We are deeply committed to our clients and stand fully behind the services our team provided to Mr. Davidson,” Deloitte Tax said in an e-mailed statement. “We regret that the estate executor has decided to pursue this path.”

 

Deloitte Tax is ready to fight the lawsuit and is confident it will win, the company said.

According to the lawsuit, the Internal Revenue Service sent Davidson’s estate the $2.7 billion tax bill in May 2013 and, after negotiations, the estate is obligated to pay more than $457 million, in addition to $168 million in estate taxes and $82 million in gift taxes already paid.

 

“In its zeal to secure Mr. Davidson’s business, Deloitte Tax failed to disclose the numerous material risks associated with the plan that it advocated,” Davidson’s estate said in the lawsuit, which was filed in state court in Manhattan.

 

In addition to the Pistons, Davidson also owned the NHL’s Tampa Bay Lightning and in 2004 became the only owner in the history of professional sports whose teams won the hockey and basketball championships in the same year.

 

The case is Aaron v. Deloitte Tax LLP, 653203/2015, New York State Supreme Court, New York County (Manhattan)

 

 

 

A Back-to-School Tax Break Refresher

BY MICHAEL SONNENBLICK

 


$31,000. But there is some relief available from a tax perspective.

This article will give you a brief, general overview of some tax relief available for dealing with education expenses. You can use it as a checklist to go over with your clients during your next sit-down with them.

 

But remember, the list is brief and general. For more information, and more specifics, you should refer to IRS Publication 970. This publication is generally updated annually at the beginning of the year. The most current version is from 2014. This is important because, as discussed below, in 2014 there was a deduction available for qualified tuition and fee expenses that is not available now.

 

1. Taxation of Scholarships, Fellowship Grants, Grants and Tuition Reductions: A scholarship or fellowship grant is tax free (excludable from gross income) only if the recipient is a candidate for a degree at an eligible educational institution. Fulbright grants, Pell grants and other Title IV need-based education grants, and benefits received from Veterans Affairs, are generally treated as a scholarship or fellowship grant. But payments that students at the military academies receive are not scholarships and are includable in income. Qualified tuition reductions are generally not includable in income.

 

2. American Opportunity Tax Credit: A taxpayer may be able to claim a credit in 2015 for up to $2,500 (depending upon the taxpayer’s income) for adjusted education expenses paid for each student who qualifies for the American Opportunity Tax Credit, or AOTC. Forty percent of this credit may be refundable (i.e., the taxpayer can receive money back even if he does not owe any income taxes). If a taxpayer elects to receive this credit, then he or she cannot also claim the lifetime learning credit (discussed below).

 

3. Lifetime Learning Credit: If taxpayers cannot claim the AOTC, they might be able to claim the lifetime learning credit. This is a credit of up to $2,000 for qualified education expenses paid for all eligible students. The credit is nonrefundable (unlike the AOTC).

 

4. Student Loan Interest Deduction: Generally, personal interest paid, other than certain mortgage interest, is not deductible. However, if a taxpayer’s modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of the taxpayer’s income subject to tax by up to $2,500 in 2015.

 

5. Student Loan Cancellations and Repayment Assistance: Generally, if a taxpayer is responsible for making loan payments, and the loan is cancelled (forgiven), the taxpayer must include the amount that was forgiven in gross income for tax purposes. However, if the taxpayer fulfills certain requirements, two types of student loan assistance may be tax free. The types of assistance are student loan cancellation and student loan repayment assistance.

 

6. Coverdell Education Savings Account (ESA): If a taxpayer meets the income requirements, he or she can contribute to a Coverdell ESA. Contributions are not deductible, but income in the account grows tax free until it is distributed; and distributions are tax free if the distributions are not more than a designated beneficiary’s qualified education expenses at an eligible educational institution.

 

7. Qualified Tuition Programs (QTPs or 529 Plans): Contributions are not deductible, but income in the plan grows tax free and no tax is due on a distribution unless the amount distributed is greater than the beneficiary’s adjusted qualified education expenses.

 

8. IRA Distributions Not Subject to Additional Tax: Generally, if taxpayers take a distribution from an IRA before reaching age 59½, they must pay a 10 percent additional tax on the early distribution. This applies to any IRA they own, whether it is a traditional IRA (including a SEP-IRA), a Roth IRA or a SIMPLE IRA. The additional tax on an early distribution from a SIMPLE IRA may be as high as 25 percent. See IRS Publication 560, Retirement Plans for Small Business, for information on SEP-IRAs, and IRS Publication 590-A and 590-B for information about all other IRAs. However, taxpayers can take distributions from their IRAs for qualified higher education expenses without having to pay the 10 percent additional tax. They may owe income tax on at least part of the amount distributed, but they may not have to pay the 10 percent additional tax. Generally, if the taxable part of the distribution is less than or equal to the adjusted qualified education expenses (AQEE), none of the distribution is subject to the additional tax. If the taxable part of the distribution is more than the AQEE, only the excess is subject to the additional tax.

 

9. Education Savings Bond Program: Generally, taxpayers must pay tax on the interest earned on U.S. savings bonds. If they do not include the interest in income in the years it is earned, they must include it in income in the year in which they cash in the bonds. However, when taxpayers cash in certain savings bonds under an education savings bond program, they may be able to exclude the interest from income.

 

10. Employer-Provided Educational Assistance: If someone receives educational assistance benefits from his employer under an educational assistance program, he or she can exclude up to $5,250 of those benefits each year. This means the employer should not include those benefits with the employee’s wages, tips, and other compensation shown on Form W-2, box 1. This also means that the employee does not have to include the benefits on the income tax return. Since the assistance is not included on the tax return, the employee cannot use it to determine any other deductions or credits.

 

11. Business Deduction for Work-Related Education: An employee who can itemize deductions may be able to claim a deduction for the expenses he paid for work-related education. The employee’s deduction will be the amount by which the qualifying work-related education expenses plus other job and certain miscellaneous expenses (except for impairment-related work expenses of disabled individuals) is greater than 2 percent of his or her adjusted gross income. An itemized deduction reduces the amount of income subject to tax. Self-employed individuals can deduct expenses for qualifying work-related education directly from their self-employment income. This reduces the amount of income subject to both income tax and self-employment tax. Work-related education expenses may also qualify the individual for other tax benefits, such as the AOTC and lifetime learning credits (discussed above). Taxpayers may qualify for these other benefits even if they do not meet the work-related business deduction requirements listed above. Also, work-related education expenses may qualify a taxpayer to claim more than one tax benefit. Generally, taxpayers may claim any number of benefits as long as they use different expenses to figure each one.

 

12. Tuition and Fees Deduction: This is a trap for the unwary, as, for 2015 and beyond, there is no deduction for qualified tuition and fees. For 2014 and prior, a deduction of no more than $4,000 (based on modified adjusted gross income) for qualified tuition and fees was allowable.

 

Michael Sonnenblick, J.D., LL.M., currently serves as an editor/author with Thomson Reuters Checkpoint within the Tax & Accounting business of Thomson Reuters. He holds a J.D. degree from Boston University School of Law and an LL.M. in Taxation from New York University Law School. A member of the New York Bar, Michael has 20 years of tax experience, including service with a major Wall Street bank and international law firms. In addition, he has represented clients before the IRS. Michael’s specialties include individual taxation and retirement planning.

 

 

 

How Coverage You Offer (or Don’t Offer) May Mean an Employer Shared Responsibility Payment for Your Organization

 

Under the Affordable Care Act, certain employers, based on workforce size – called applicable large employers – are subject to the employer shared responsibility provisions. The vast majority of employers fall below the workforce size threshold and, therefore, are not subject to the employer shared responsibility provisions.

 

If you are an employer that is subject to the employer shared responsibility provisions, you may choose either to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents, or to potentially owe an  employer shared responsibility payment to the IRS.  Many employers already offer coverage that is sufficient to avoid owing a payment.

 

If your organization is an applicable large employer, and you choose not to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents, you may be subject to one of two potential employer shared responsibility payments.

More specifically, you may need to make an employer shared responsibility payment to the IRS if you are an applicable large employer and either of these circumstances applies for 2015:

 

·      You offered minimum essential coverage to fewer than 70 percent of your full-time employees and their dependents, and at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and received the premium tax credit.    

 

·      You offered minimum essential coverage to at least 70 percent of your full-time employees and their dependents, but at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and received the premium tax credit.  A full-time employee could receive the premium tax credit because the coverage that was offered was not affordable, did not provide minimum value, or was not offered to the full-time employee. 

 

 

For both of these circumstances, the 70 percent threshold changes to 95 percent after 2015.

The terms “affordable” and “minimum value” have specific meanings under the Affordable Care Act that are explained in questions 19 and 20 on the employer shared responsibility provision questions and answers page on IRS.gov/aca.  Transition relief for offers of coverage to dependents for 2015 is described in question 33 on the same page.  

 

For more information on the information reporting responsibilities that apply to applicable large employers see our Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers.

 

 

Tax Breaks and Problems for Caregivers

By Michael Cohn 

 

As the Baby Boomer generation ages and faces the prospect of needing to hire caregivers, accountants are increasingly being called upon to help families sort out the tax issues associated with hired domestic help.

 

While both families and domestic workers can face complex tax issues such as the so-called “Nanny Tax,” there are some tax benefits as well. For example, families are able to reimburse college-attending caregivers for their tuition (up to $5,250) tax-free, according to Care.com HomePay, a service that provides payroll management, tax filing, guidance and support for household employers. According to a recent survey by the company, 80 percent of respondents said they would hire household care for their family from a local college, but only 19 percent are aware of the tax benefits associated with hiring a college caregiver.

 

Care.com HomePay director Tom Breedlove visited the Accounting Today offices last week and talked about some of the issues faced by household employers and employees. Those include calculating overtime pay, which many domestic workers are entitled to receive but often don’t get. He noted that federal law specifies that all “non-exempt” workers must be paid time-and-a-half for all hours over 40 during a seven-day work week. Fixed salaries are illegal. While federal law exempts live-in employees from overtime law, some states have their own overtime requirements for live-in employees. For example, in New York it’s over 44 hours per week.

 

There used to be an exemption for so-called “companions,” but starting on Jan. 1 of this year, third-party caregivers can no longer be categorized as companions. Overtime pay thus applies for companions unless the caregiver is directly employed by the family.

 

“The repeal of the companion care exemption is making waves in the senior care world,” said Breedlove.

 

He noted that back in the 1970s, anyone providing companionship for seniors did not need to get overtime. But the Department of Labor gradually narrowed the definition of “companion” and said if a caregiver works for a third party, they have to get overtime. The home care industry appealed, but the Labor Department eventually won a unanimous decision at the appellate court level. Breedlove predicted that as a result of the changing landscape, there will be a gradual move toward private employment of caregivers by households, rather than going through third parties.

 

His service works with accountants on behalf of families and caregivers, sending payroll notifications and tax returns to accountants, giving them the ability to manage the relationship. His service has also created a “getting started” packet for accountants, including sample employment letters.

 

Caregivers and families frequently need to turn to accountants when they get in trouble with the Internal Revenue Service or labor regulators. It is still all too common in the domestic worker industry for household employees to be paid “off the books” or “under the table,” since the various pay and tax requirements can be onerous for many families. Breedlove pointed out that many domestic workers focus solely on their take-home pay and don’t care what their household employer needs to do in the way of payroll taxes and overtime to get to the level they specify. To simplify matters, many families get in the habit of paying the worker informally, but that can be a problem when it comes time for the worker to retire and they don’t have money put aside in a retirement account or reported to the Social Security Administration.

 

And there are tax benefits available to household employees and families besides the tuition benefits mentioned above. IRS Publication 503, on child and dependent care expenses, lists a number of them. Form 2441, for claiming the Child and Dependent Care Tax Credit, allows families to itemize up to $3,000 per child per year, up to a maximum of $6,000 for two or more qualifying children. Most families will see a 20 percent tax credit and save $600 or $1,200 per year, according to the company, depending on the number of children.

 

 

 

Due-date changes for partnership and C corporation returns

 

On July 31, 2015, the President signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Highway Act) into law, providing a three-month extension of the general expenditure authority for the Highway Trust Fund (HTF). Part of the HTF extension was paid for by changes to tax compliance provisions, the most significant of which is a change to the longstanding due date for C corporation [Form 1120 (“U.S. Corporation Income Tax Return”)] and partnership [Form 1065 (“U.S. Return of Partnership Income”)] returns.
 

For tax years beginning after 2015, the Highway Act switches the Form 1120 and Form 1065 initial due dates. Thus, beginning with 2016 returns:

 

·      The Form 1065 due date will be accelerated by a month to two and a half months after the close of the partnership’s tax year (March 15 for calendar-year partnerships). A six-month extension (through September 15 for calendar-year partnerships) will also be allowed.

 

·      The Form 1120 due date will generally be deferred by a month to three and a half months after the close of the corporation’s tax year (April 15 for calendar-year corporations). However, under a special transition rule, for C corporations with fiscal years ending on June 30, the change won’t apply (it will continue to be September 15) until tax years beginning after 2025. An automatic six-month extension will generally be allowed. However, until 2026, an automatic five-month extension (to September 15) applies to calendar-year corporations and an automatic seven-month extension (to April 15) applies to June 30 fiscal year corporations.

 

 

Note that the filing deadline for S corporations has not changed. So, for years beginning after 2015, S corporations and partnerships will have the same March 15 filing deadlines. Also, for calendar-year entities, the revised deadlines will first apply to 2016 returns filed in 2017.

 

 

 

Shared equity financing arrangements for home ownership

dult children may be able to acquire a more expensive home than they might otherwise afford by using a shared equity financing arrangement, under which parents or other relatives share in the purchase and cost of maintaining a house used by the children as a principal residence. The nonresident owner rents his or her portion of the home to the resident owner and obtains the annual tax benefits of renting real estate if the statutory requirements are satisfied. Since the child does not own 100% of the home, he or she is the relative’s tenant as to the portion of the home not owned and rents that interest from the relative at a fair market rate.

 

A shared equity financing arrangement is an agreement by which two or more persons acquire qualified home ownership interests in a dwelling unit and the person (or persons) holding one of the interests is entitled to occupy the dwelling as his or her principal residence, and is required to pay rent to the other person(s) owning qualified ownership interests.

 

Under the vacation home rules, personal use of the home by a child or other relative of the property’s owner is normally attributed to the owner. However, an exception to the general rule exists when the dwelling is rented to a tenant for a fair market rent and serves as the renter’s principal residence. When the tenant owns an interest in the property, this exception to the general rule applies only if the rental qualifies as a shared equity financing arrangement.

Example: Shared equity financing arrangement facilitates child’s home ownership.

 

Mike and Laura have agreed to help their son, Bob, purchase his first home. The total purchase price is $100,000, consisting of a $20,000 down payment and a mortgage of $80,000. Mike and Laura pay half of the down payment and make half of the mortgage payment pursuant to a shared equity financing agreement with Bob. Bob pays them a fair rental for using 50% of the property, determined when the agreement was entered into.
 

Under this arrangement, Bob treats the property as his personal residence for tax purposes, deducting his 50% share of the mortgage interest and property taxes. Because his use is not attributed to his parents, Mike and Laura, they treat the property as rental. They must report the rent they receive from Bob, but can deduct their 50% share of the mortgage interest and taxes, the maintenance expenses they pay, and depreciation based on 50% of the property’s depreciable basis. If the property generates a tax loss, it is subject to, and its deductibility is limited by, the passive loss rules.

One drawback to shared equity arrangements is that the nonresident owners will not qualify for the gain exclusion upon the sale of the residence. The result will be a taxable gain for the portion of the gain related to the deemed rental. The gain may also be subject to the 3.8% net investment income tax (NIIT). Parents should consider guaranteeing or cosigning the mortgage, instead of outright joint ownership, if excluding potential future gain is a major consideration. 

If it is anticipated that the resident owner will ultimately purchase the equity of the nonresident owner and the rental will generate losses suspended under the passive loss rules, special care must be taken when the lease terms are agreed to, because suspended passive losses normally allowed at disposition are not allowed when the interest is sold to a related party. This problem can be minimized by making a larger down payment that decreases mortgage interest expense, or by charging a rent at the higher end of the reasonable range for the value of the interest being rented to the resident owner.

 

 

 

Time to start year-end tax planning

 

The federal income tax rates for 2015 are the same as last year: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. However, the rate bracket beginning and ending points are increased slightly to account for inflation. For 2015, the maximum 39.6% bracket affects singles with taxable income above $413,200, married joint-filing couples with income above $464,850, heads of households with income above $439,000, and married individuals who file separate returns with income above $232,425. Higher-income individuals can also get hit by the 0.9% additional Medicare tax on wages and self-employment income and the 3.8% net investment income tax (NIIT), which can both result in a higher-than-advertised marginal federal income tax rate for 2015.

What we’ve listed below are a few money-saving ideas to get you started that you may want to put in action before the end of 2015:

 

·      For 2015, the standard deduction is $12,600 for married taxpayers filing joint returns. For single taxpayers, the amount is $6,300. If your total itemized deductions each year are normally close to these amounts, you may be able to leverage the benefit of your deductions by bunching deductions, such as charitable contributions and property taxes, in every other year. This allows you to time your itemized deductions so they are high in one year and low in the next. However, the alternative minimum tax (AMT), discussed later in this article, should be considered when using this strategy.

 

·      If you or a family member own traditional IRAs and reached age 70½ this year, consider whether it’s better to take the first required minimum distribution in 2015 or by April 1 of next year.

 

 

·      If your employer offers a Flexible Spending Account arrangement for your out-of-pocket medical or child care expenses, make sure you’re maximizing the tax benefits during the upcoming enrollment period for 2016.

 

·      If you have a 401(k) plan at work, it’s just about time to tell your company how much you want to set aside on a tax-free basis for next year. Contribute as much as you can stand, especially if your employer makes matching contributions. You give up “free money” when you fail to participate with the maximum amount the company will match.

 

 

·      If it looks like you are going to owe income taxes for 2015, consider bumping up the federal income taxes withheld from your paychecks now through the end of the year.

 

·      Between now and year end, review your securities portfolio for any losers that can be sold before year end to offset gains you have already recognized this year or to get you to the $3,000 ($1,500 married filing separately) net capital loss that’s deductible each year.

 

 

·      If you own any securities that are all but worthless with little hope of recovery, you might consider selling them before the end of the year so you can capitalize on the loss this year.

 

·      Don’t overlook estate planning. For 2015, the unified federal gift and estate tax exemption is a generous $5.43 million, and the federal estate tax rate is a historically reasonable 40%. Even if you already have an estate plan, it may need updating to reflect the current estate and gift tax rules. Also, you may need to make some changes that have nothing to do with taxes.

 

 

·      If you are self-employed, consider employing your child. Doing so shifts income (which is not subject to the “kiddie tax”) from you to your child, who normally is in a lower tax bracket or may avoid tax entirely due to the standard deduction. There can also be payroll tax savings and the ability to contribute to an IRA for the child.

 

·      If you own an interest in a partnership or S corporation that you expect to generate a loss this year, you may want to make a capital contribution (or in the case of an S corporation, loan it additional funds) before year end to ensure you have sufficient basis to claim a full deduction.

 

Remember that effective tax planning requires considering at least this year and next year.  Without a multiyear outlook, you can’t be sure maneuvers intended to save taxes on your 2015 return won’t backfire and cost additional money in the future.

 

And finally, watch out for the AMT in all of your planning, because what may be a great move for regular tax purposes may create or increase an AMT problem. There’s a good chance you’ll be hit with AMT if you deduct a significant amount of state and local taxes, claim multiple dependents, exercise incentive stock options, or recognize a large capital gain this year.
 

Again, these are just a few suggestions to get you thinking. If you’d like to know more about them or want to discuss other ideas, please feel free to call us.

 

 

Avoid These Five Email Annoyances

 

Email is a primary form of communication in the business world because it allows people to work within their own schedules and time-management styles.

 

With its ease of use, however, we may be sending more messages than necessary, contributing to a general email overload that can mask which items are most important.

Here are some common pet peeves in regards to this lightning-fast communication that may help you refine your email practices:

 

Sending/Responding to All
Before you send a mass email to all of your contacts or reply to all on an email, ask yourself if each of those people really have a need to know the information within your message.

 

While this may cover all bases, it is disrespectful to the recipients of your message that aren’t an essential part of the conversation by wasting their time and clogging their inbox.

 

Attempting Complicated Conversations
If you know that an exchange is likely to require, well, a lot of exchanges, then email isn’t the right venue for the job.

 

Although you will have a record of everything said, important information could be delayed and there will be a lot of unnecessary messages back and forth.

 

Your issue will be resolved more quickly if you just make a phone call.

 

Vague Subject Lines
Until your message’s recipient actually opens your communication, all that will be visible is the subject line.

 

Since you don’t know the other person’s schedule, be respectful of their time and create a subject line that gives a real inkling as to the content of your message.

 

This way, he or she can scan the inbox and still have an idea if it’s crucial to open your communication right then or if it can wait until later in the day.

 

Eleventh-Hour Cancellations
If you need to cancel or reschedule a meeting at the last minute, this is definitely a time to pick up a phone and call.

 

You don’t know for sure if the other person or group is even going to see that email before showing up at a meeting or event, and leaving such a thing to chance could wreak havoc with their schedule when their time could be better spent on other things.

 

Not Responding
Although generic emails don’t usually require a response, don’t forget to respond to legitimate emails.

 

Even if you’re short on time and won’t be able to answer a question posed in an email fully, it only takes a few moments to shoot a message that says, “I’ll look into that and be back with you later today.”

 

This lets the sender know you’ve seen the email and will address its contents in due time. Be sure to flag it for followup, so you remember to send the response.

 

Thomas Fox is president of Tech Experts, southeast Michigan's leading small business computer support company.

 

 

 

IRS Begins Exchanging Tax Info with Other Countries under FATCA

BY MICHAEL COHN

 

The Internal Revenue Service said Friday it has met a key milestone relating to the Foreign Account Tax Compliance Act, or FATCA, having begun exchanging tax information with certain foreign governments in time to meet a Sept. 30, 2015 deadline.

 

The automatic exchange of account information with tax authorities abroad was part of the intergovernmental agreements that the Treasury Department negotiated with foreign governments in an effort to implement the law.

 

FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions to send the IRS information on the accounts of U.S. taxpayers, or else face stiff penalties of up to 30 percent on their income from U.S. sources. The law has attracted controversy abroad, prompting the Treasury to negotiate agreements with other countries to allow for reciprocal exchange of tax information on both U.S. and foreign taxpayers from both U.S. and foreign banks, in accordance with existing tax treaties to prevent double taxation. In most cases, the agreements allow the banks to first turn over the information to their own countries’ tax authorities before it is handed over to the IRS or a tax authority in another country.

 

To meet the Sept. 30 milestone, the IRS said it developed an information system infrastructure, procedures, and data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the agreements implementing FATCA.

 

“Meeting the Sept. 30 deadline is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements,” said IRS Commissioner John Koskinen in a statement. “FATCA is an important tool against offshore tax evasion, and this is a significant step in the process. The IRS appreciates the assistance of our counterparts in other jurisdictions who have helped to make this  possible.”

 

The information exchange is part of the IRS’s overall efforts to implement FATCA, enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts or foreign entities. FATCA generally requires withholding agents to withhold on certain payments made to foreign financial institutions unless they agree to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

 

In response to the enactment of FATCA and other jurisdictions’ interest in facilitating and participating in the exchange of financial account information, the U.S. government entered into a number of bilateral IGAs that set the groundwork for cooperation between the jurisdictions in this area. Certain IGAs not only enable the IRS to receive this information from FFIs, but also enable, according to the IRS, more efficient exchange by allowing a foreign jurisdiction tax administration to gather the specified information and provide it to the IRS. Some IGAs also require the IRS to reciprocally exchange certain information about accounts maintained by residents of foreign jurisdictions in U.S. financial institutions with their jurisdictions’ tax authorities.

 

Under these reciprocal IGAs, the first exchange had to take place by September 30, giving the IRS a deadline to put in place a process to facilitate this data exchange.

 

The IRS said the information now available provides the United States and its partner jurisdictions an improved means of verifying the tax compliance of taxpayers using offshore banking and investment facilities, and improves detection of those who may attempt to evade reporting the existence of offshore accounts and the income attributable to those accounts.

 

The IRS said it will only engage in reciprocal exchange with foreign jurisdictions that, among other requirements, meet the IRS’s stringent safeguard, privacy, and technical standards.  Before exchanging with a particular jurisdiction, the U.S. conducted detailed reviews of that jurisdiction’s laws and infrastructure concerning the use and protection of taxpayer data, cyber-security capabilities, as well as security practices and procedures.

 

“This groundbreaking effort has fundamentally altered our relationship with tax authorities around the world, giving us all a much stronger hand in fighting illegal tax avoidance and leveling the playing field,” Koskinen said.

 

Meeting the Sept. 30 deadline reflects the agency’s collaboration and partnership with dozens of jurisdictions around the world. The capacity for reciprocal automatic exchange builds on a number of accomplishments, including the development of a consistent data reporting format, or schema, and the agreement to use this format by all jurisdictions; establishment of the details and procedures required to assure data confidentiality; creation of a data transmission system to meet high standards for encryption and security; and cooperation with foreign jurisdiction tax administrations to achieve the timely implementation of this exchange.

 

Koskinen pointed out that the risks of hiding money offshore are growing and the potential rewards are shrinking. Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program, which the IRS said is open until otherwise announced.

 

 

 

IRS Begins Exchanging Tax Info with Other Countries under FATCA

BY MICHAEL COHN

 

The Internal Revenue Service said Friday it has met a key milestone relating to the Foreign Account Tax Compliance Act, or FATCA, having begun exchanging tax information with certain foreign governments in time to meet a Sept. 30, 2015 deadline.

 

The automatic exchange of account information with tax authorities abroad was part of the intergovernmental agreements that the Treasury Department negotiated with foreign governments in an effort to implement the law.

 

FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions to send the IRS information on the accounts of U.S. taxpayers, or else face stiff penalties of up to 30 percent on their income from U.S. sources. The law has attracted controversy abroad, prompting the Treasury to negotiate agreements with other countries to allow for reciprocal exchange of tax information on both U.S. and foreign taxpayers from both U.S. and foreign banks, in accordance with existing tax treaties to prevent double taxation. In most cases, the agreements allow the banks to first turn over the information to their own countries’ tax authorities before it is handed over to the IRS or a tax authority in another country.

 

To meet the Sept. 30 milestone, the IRS said it developed an information system infrastructure, procedures, and data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the agreements implementing FATCA.

 

“Meeting the Sept. 30 deadline is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements,” said IRS Commissioner John Koskinen in a statement. “FATCA is an important tool against offshore tax evasion, and this is a significant step in the process. The IRS appreciates the assistance of our counterparts in other jurisdictions who have helped to make this  possible.”

 

The information exchange is part of the IRS’s overall efforts to implement FATCA, enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts or foreign entities. FATCA generally requires withholding agents to withhold on certain payments made to foreign financial institutions unless they agree to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

 

In response to the enactment of FATCA and other jurisdictions’ interest in facilitating and participating in the exchange of financial account information, the U.S. government entered into a number of bilateral IGAs that set the groundwork for cooperation between the jurisdictions in this area. Certain IGAs not only enable the IRS to receive this information from FFIs, but also enable, according to the IRS, more efficient exchange by allowing a foreign jurisdiction tax administration to gather the specified information and provide it to the IRS. Some IGAs also require the IRS to reciprocally exchange certain information about accounts maintained by residents of foreign jurisdictions in U.S. financial institutions with their jurisdictions’ tax authorities.

 

Under these reciprocal IGAs, the first exchange had to take place by September 30, giving the IRS a deadline to put in place a process to facilitate this data exchange.

 

The IRS said the information now available provides the United States and its partner jurisdictions an improved means of verifying the tax compliance of taxpayers using offshore banking and investment facilities, and improves detection of those who may attempt to evade reporting the existence of offshore accounts and the income attributable to those accounts.

 

The IRS said it will only engage in reciprocal exchange with foreign jurisdictions that, among other requirements, meet the IRS’s stringent safeguard, privacy, and technical standards.  Before exchanging with a particular jurisdiction, the U.S. conducted detailed reviews of that jurisdiction’s laws and infrastructure concerning the use and protection of taxpayer data, cyber-security capabilities, as well as security practices and procedures.

 

“This groundbreaking effort has fundamentally altered our relationship with tax authorities around the world, giving us all a much stronger hand in fighting illegal tax avoidance and leveling the playing field,” Koskinen said.

 

Meeting the Sept. 30 deadline reflects the agency’s collaboration and partnership with dozens of jurisdictions around the world. The capacity for reciprocal automatic exchange builds on a number of accomplishments, including the development of a consistent data reporting format, or schema, and the agreement to use this format by all jurisdictions; establishment of the details and procedures required to assure data confidentiality; creation of a data transmission system to meet high standards for encryption and security; and cooperation with foreign jurisdiction tax administrations to achieve the timely implementation of this exchange.

 

Koskinen pointed out that the risks of hiding money offshore are growing and the potential rewards are shrinking. Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program, which the IRS said is open until otherwise announced.

 

 

Interest in the presidential candidates tax proposals?

 

Check out:

http://taxfoundation.org/blog/comparison-presidential-tax-plans-and-their-economic-effects

 

The tax foundation is a non-partisian non profit organization.

 

Social Security Won't Provide Cost of Living Increase Next Year

BY MICHAEL COHN

 

The Social Security Administration confirmed Thursday there will not be a cost of living increase for 2016 due to declines in consumer prices.

 

The nearly 65 million recipients of monthly Social Security and Supplementary Social Security Income will see no automatic increase in their payments next year. Steep declines in oil prices have driven down inflation for many of the consumer goods that the federal government includes in its cost of living calculations. The move had been widely anticipated in recent days ahead of Thursday's official announcement.

 

The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.  The period of consideration includes the third quarter of the last year a cost-of-living adjustment, or COLA, was made to the third quarter of the current year. As determined by the Bureau of Labor Statistics, there was no increase in the CPI-W from the third quarter of 2014 to the third quarter of 2015. Therefore, under existing law, there can be no COLA in 2016.

 

Other adjustments that would normally take effect based on changes in the national average wage index also will not take effect in January 2016. Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, along with the retirement earnings test exempt amounts. These amounts will remain unchanged in 2016. 

 

The Department of Health and Human Services has not yet announced Medicare premium changes for 2016, the Social Security Administration noted.  Should there be an increase in the Medicare Part B premium, the law contains a “hold harmless” provision that protects approximately 70 percent of Social Security beneficiaries from paying a higher Part B premium, in order to avoid reducing their net Social Security benefit. Those not protected include higher income beneficiaries subject to an income-adjusted Part B premium and beneficiaries newly entitled to Part B in 2016. In addition, beneficiaries who have their Medicare Part B premiums paid by state medical assistance programs will see no change in their Social Security benefit. The state will be required to pay any Medicare Part B premium increase.

 

Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, nevertheless expressed alarm about the news that Social Security beneficiaries will not receive a cost of living adjustment in 2016. He pointed out that one serious effect of this news is that some seniors would face Medicare Part B premium increases of over 50 percent, and all Medicare beneficiaries would see their deductible increase by a similar rate.

 

“Today’s news confirms that seniors, through no fault of their own, will face substantially higher Medicare costs on top of not receiving a cost of living increase next year.” Wyden said in a statement. “Significant increases in Medicare Part B premiums and deductibles can and should be prevented by Congress on a bipartisan basis before the end of the year.”

 

The information about the Medicare changes for 2016, when it's available, will be found at www.medicare.gov. For additional information, please go to www.socialsecurity.gov/cola. A fact sheet provides more information on the 2016 Social Security and SSI changes.

 

 

 

IRS Windows Upgrade Went Awry

BY MICHAEL COHN

 

The Internal Revenue Service’s plans to upgrade its workstations and servers to newer versions of Windows led to years-long delays, according to a new government report.

 

The report, from the Treasury Inspector General for Tax Administration, found the IRS was unable to upgrade all of its Windows workstations from Windows XP and all of its Windows servers from Windows Server 2003 by the time Microsoft decided to end its support for them. Microsoft ended mainstream support for Windows XP in April 2009. Two years later, in April 2011, the IRS signed onto a project to begin the process of upgrading to Windows 7. However, the IRS did not actually begin upgrading its workstations until September 2012.  Microsoft announced that extended support for Windows XP would be discontinued in April 2014. The IRS then needed to contract with Microsoft to provide continued support for one additional year beyond this deadline.

 

TIGTA found, at the conclusion of its fieldwork for the report, that the IRS had not accounted for the location or migration status of approximately 1,300 workstations and upgraded only about one-half of its Windows servers from the 2003 software version to the 2008 release. Since April 2011 when the IRS initially started the Windows workstation upgrade project, the IRS spent approximately $128 million to upgrade its Windows workstations and expects to spend an additional $11 million through the end of fiscal year 2015. TIGTA claimed the IRS did not follow established policies over project management and provided inadequate oversight and monitoring of the Windows XP upgrade early in its effort.

 

TIGTA recommended that the IRS’s chief technology officer ensure that all workstations have been adequately accounted for and upgraded to Windows 7; ensure that enterprise-wide information technology maintenance and upgrade efforts going forward follow the Enterprise Life Cycle, as prescribed by IRS policy, to mitigate potential delays and to ensure project transparency and accountability; and require appropriate Executive Steering Committees to oversee enterprise-wide information technology maintenance and upgrade efforts with regular project reviews and executive approvals.

 

The IRS agreed with two recommendations. First, the IRS said it has accounted for all workstations that need to be upgraded to Windows 7 and plans to track them until completed. Second, the IRS plans to ensure that enterprise wide upgrade efforts receive adequate oversight.

The IRS partially agreed with TIGTA’s recommendation that large-scale upgrade projects should follow the Enterprise Life Cycle. It disagreed that all upgrade efforts should follow the Enterprise Life Cycle but agreed that large-scale, enterprise-wide efforts need to have a set of well documented minimum project documentation requirements to ensure that effective project management is adhered to for projects of this size.

 

IRS CTO Terence V. Milholland disagreed with several of the points raised by TIGTA in a response accompanying the report. “The audit incorrectly concludes that IRS has not accounted for all XP workstations,” he wrote. “We acknowledge there were challenges with our inventory data due to the many antiquated systems in our IT ecosystem. In spite of this, we took extraordinary steps to identify, document and upgrade every XP workstation in the IRS. On several occasions throughout the audit, the IRS provided information to the TIGTA team that clearly documented the number of workstations to be upgraded, where those workstations were located, and our strategy to complete the upgrades. Although, footnoted in the report, TIGTA opted not to change their assertion that the IRS had not accounted for all XP workstations. As of this date, only 71 Windows XP workstations remain to be migrated. Risks on these workstations have been mitigated and upgrades will be completed by the end of this calendar year.”

 

He also contended that the IRS had followed the appropriate project management policies, and he disagreed with TIGTA’s conclusion that the IRS did not take appropriate steps to ensure the security of the XP workstations during the upgrades. 

 

 

 

IRS Collecting $8 Billion from Offshore Tax Compliance Push

BY MICHAEL COHN

 

The Internal Revenue Service said Friday it has collected more than $8 billion from its Offshore Voluntary Disclosure Programs as more than 54,000 taxpayers have come forward to tell the IRS about previously hidden foreign assets.

 

The Offshore Voluntary Disclosure Program, or OVDP, and the streamlined procedures both enable taxpayers to correct prior omissions and meet their federal tax obligations while mitigating the potential penalties of continued non-compliance. There are also separate procedures for those who have paid their income taxes but omitted certain other information returns.

 

“The groundbreaking effort around automatic reporting of foreign accounts has given us a much stronger hand in fighting tax evasion,” said IRS Commissioner John Koskinen in a statement. “People with undisclosed foreign accounts should carefully consider their options and use available avenues, including the offshore program and streamlined procedures, to come back into full compliance with their tax obligations.”

 

The IRS noted that under the Foreign Account Tax Compliance Act, or FATCA for short, and the network of intergovernmental agreements, or IGAs, between the U.S. and partner jurisdictions, automatic third-party account reporting began this year, making it less likely that offshore financial accounts will go unnoticed by the IRS.

 

In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

 

The OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

 

Since the OVDP began in 2009, there have been more than 54,000 disclosures, and the IRS has collected more than $8 billion from this initiative. 

 

The streamlined procedures, initiated in 2012, were developed to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts but whose circumstances substantially differed from those taxpayers for whom the OVDP requirements were designed. More than 30,000 taxpayers have used streamlined procedures to come back into compliance with U.S. tax laws. Two-thirds of these have used the procedures since the IRS expanded the eligibility criteria in June 2014.

 

Separately, based on information obtained from investigations and under the terms of settlements with foreign financial institutions, the IRS said it has conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

 

The IRS stressed that it remains committed to stopping offshore tax evasion wherever it occurs, and even though the agency has faced several years of budget reductions, the IRS continues to pursue cases throughout the world

 

 

In 2016, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged

 

WASHINGTON — For tax year 2016, the Internal Revenue Service today announced  annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2015-53 provides details about these annual adjustments.   The tax items for tax year 2016 of greatest interest to most taxpayers include the following dollar amounts:

 

  • For tax year 2016, the 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are described in the revenue procedure.

 

  • The standard deduction for heads of household rises to $9,300 for tax year 2016, up from $9,250, for tax year 2015.The other standard deduction amounts for 2016 remain as they were for 2015:   $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly

 

  • The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).

 

  • The personal exemption for tax year 2016 rises $50 to $4,050, up from the 2015 exemption of $4,000. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)

 

  • The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). The 2015 exemption amount was $53,600 ($83,400 for married couples filing jointly).  For tax year 2016, the 28 percent tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).

 

  • The tax year 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.

 

  • For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking, up from $250 for tax year 2015.

 

  • For tax year 2016 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250, up from $2,200 for tax year 2015; but not more than $3,350, up from $3,300 for tax year 2015. For self-only coverage the maximum out of pocket expense amount remains at $4,450. For tax year 2016 participants with family coverage, the floor for the annual deductible remains as it was in 2015 -- $4,450, however the deductible cannot be more than $6,700, up $50 from the limit for tax year 2015. For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.

 

  • For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.

 

  • For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.

 

  • Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, up from a total of $5,430,000 for estates of decedents who died in 2015. 

 

 

 

IRS Announces 2016 Pension Plan Limitations; 401(k) Contribution Limit Remains Unchanged at $18,000 for 2016

 

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016.  In general, the pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment.  However, other limitations will change because the increase in the index did meet the statutory thresholds.

 

The highlights of limitations that changed from 2015 to 2016 include the following:

 

  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $184,000 and $194,000, up from $183,000 and $193,000.

 

  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000.  For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000.

 

  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,500 for married couples filing jointly, up from $61,000; $46,125 for heads of household, up from $45,750; and $30,750 for married individuals filing separately and for singles, up from $30,500.

 

The highlights of limitations that remain unchanged from 2015 include the following:

 

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000.

 

  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

 

  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

 

  • The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross incomes (AGI) within a certain range.  For singles and heads of household who are covered by a workplace retirement plan, the income phase-out range remains unchanged at $61,000 to $71,000.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

 

  • The AGI phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

 

Below are details on both the adjusted and unchanged limitations.

 

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

 

Effective January 1, 2016, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000.  For a participant who separated from service before January 1, 2016, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2015, by 1.0011.

 

The limitation for defined contribution plans under Section 415(c)(1)(A) remains unchanged in 2016 at $53,000.

 

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2016 are as follows:

 

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $18,000.

 

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $265,000.

 

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.

 

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period remains unchanged at $1,070,000, while the dollar amount used to determine the lengthening of the 5 year distribution period remains unchanged at $210,000.

 

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.

 

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.

 

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, remains unchanged at $395,000.

 

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.

 

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.

 

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $18,000.

 

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) remains unchanged at $215,000.

 

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systematically important plan under section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb).  After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systematically important plan under section 432(e)(9)(H)(v)(III)(aa) is increased in 2016 from $1,000,000,000 to $1,012,000,000.

 

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2016 are as follows:

 

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $36,500 to $37,000; the limitation under Section 25B(b)(1)(B) is increased from $39,500 to $40,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $61,000 to $61,500.

 

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $27,375 to $27,750; the limitation under Section 25B(b)(1)(B) is increased from $29,625 to $30,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $45,750 to $46,125.

 

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $18,250 to $18,500; the limitation under Section 25B(b)(1)(B) is increased from $19,750 to $20,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,500 to $30,750.

 

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

 

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) remains unchanged at $98,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) remains unchanged at $61,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $183,000 to $184,000.

 

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $183,000 to $184,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $116,000 to $117,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

 

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,101,000 to $1,106,000. 

 

 

 

IRS Urges Public to Stay Alert for Scam Phone Calls

 

The IRS continues to warn consumers to guard against scam phone calls from thieves intent on stealing their money or their identity. Criminals pose as the IRS to trick victims out of their money or personal information. Here are several tips to help you avoid being a victim of these scams:

 

  • Scammers make unsolicited calls.  Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.

 

  • Callers try to scare their victims.  Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.

 

  • Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.

 

  • Cons try new tricks all the time.  Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.

 

  • Scams cost victims over $23 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.

 

The IRS will not:

 

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.

 

  • Demand that you pay taxes and not allow you to question or appeal the amount you owe.

 

  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.

 

  • Ask for your credit or debit card numbers over the phone.

 

  • Threaten to bring in police or other agencies to arrest you for not paying.

 

If you don’t owe taxes, or have no reason to think that you do:

 

  • Do not give out any information. Hang up immediately.

 

 

  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add "IRS Telephone Scam" in the notes.

 

If you know you owe, or think you may owe tax:

 

  • Call the IRS at 800-829-1040. IRS workers can help you.

 

Phone scams first tried to sting older people, new immigrants to the U.S. and those who speak English as a second language. Now the crooks try to swindle just about anyone. And they’ve ripped-off people in every state in the nation.

 

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

 

 

 

IRS, States, Industry Continue Progress to Protect Taxpayers from Identity Theft

 

WASHINGTON —The Internal Revenue Service, state tax administrators and leaders of the tax industry announced today continued progress to expand and strengthen protections against identity theft refund fraud for the 2016 tax season.

 

The public-private sector partnership announced success in identifying and testing more than 20 new data elements on tax return submissions that will be shared with the IRS and the states to help detect and prevent identity-theft related filings. In addition, the software industry is putting in place enhanced identity requirements and validation procedures for their customers to protect accounts from identity thieves.

 

“This unprecedented partnership continues to put strong new safeguards in place for the 2016 tax season,” IRS Commissioner John Koskinen said. “We are breaking new ground in the battle against identity theft. Taxpayers will have more protection than ever when they file their tax returns.”   Known as the Security Summit, the unprecedented collaborative effort began in March and culminated in the development of several recommendations in June between the IRS, leaders of tax preparation and software firms, payroll and tax financial product processors and state tax administrators.  Security Summit participants also identified additional topics for collaboration in the months ahead, and have continued to work together as a group to leverage their collective resources and efforts to protect taxpayers. 

 

Koskinen and other leaders met in Washington, D.C. Tuesday to update the effort. To date, 34 state departments of revenue and 20 tax industry members have signed memorandums of understanding regarding roles, responsibilities and information sharing, with more expected to sign later.

 

As part of the Security Summit process, members from the IRS, states and industry are co-chairing and serving on several teams. The teams have focused on a number of areas including improved validation of the authenticity of taxpayers and information included on tax return submissions, increased information sharing to improve refund fraud detection and expand prevention, as well as more sophisticated threat assessment and strategy development to prevent risks and threats.

 

The industry and government groups identified numerous new data elements that can be shared at the time of filing with the IRS and states to help authenticate a taxpayer and detect identity theft refund fraud. There are more than 20 new data components that will help detect possible identity theft. The data will be submitted with the tax return transmission for the 2016 filing season, a step that will help detect and prevent refund fraud on both the federal and state level.

 

Another component will enhance identity validation for taxpayers using tax software. These stronger steps will protect taxpayer accounts by creating stronger verification of customers. This effort will include creation of security questions and device identity recognition at the time of log-on – both steps being used in the financial sector.

 

“We are taking new steps upfront to protect taxpayers at the time they file and beyond,” Koskinen said. “Thanks to the cooperative efforts taking place between the industry, the states and the IRS, we will have new tools in place this January to protect taxpayers during the 2016 filing season.”

 

In addition to the states and companies from the private sector, the summit team includes several groups including the Federation of Tax Administrators (FTA) representing the states, the Council for Electronic Revenue Communication Advancement (CERCA) and the American Coalition for Taxpayer Rights (ACTR). A wide variety of groups have also joined in supporting the summit effort, including Free File Inc., the National Association of Computerized Tax Processors, the National Branded Prepaid Card Association and the Financial Services Roundtable.

 

 

 

David Copperfield Sues Accountant for Not Filing His Taxes

BY MICHAEL COHN

 

Magician David Copperfield has sued his accountant for failing to file his 2008 and 2009 Canadian tax returns and not telling him his previous accountant didn’t file his 2007 Canadian tax return either.

 

Copperfield’s company, Disappearing Inc., filed the suit against Robert Baral and his Vancouver, Canada-based firm R.C. Baral & Company, for $471,000. He retained Baral’s firm in 2008 to handle his business affairs, manage his investments and make sure his tax returns were filed in all the countries and states where he performed, according to the lawsuit, according to the legal news siteLaw360.

 

The firm had hired a different, unnamed Canadian accounting firm to handle the late tax returns, but according to the lawsuit, the firm was retained without permission from Copperfield’s general counsel, the retainer agreement was unfavorable to Copperfield, and the tax returns contained erroneous information.

 

Baral did not respond to a request for comment.

 

Copperfield’s birth name is David Seth Kotkin, but he took the name of the title character of Charles Dickens’ novel as his stage name.

 

 

 

IRS Taxpayer Assistance Centers Scale Back

BY MICHAEL COHN

 

The Internal Revenue Service has been providing face-to-face assistance to fewer people at its Taxpayer Assistance Centers around the country, according to a new government report.

 

The report, from the Treasury Inspector General for Tax Administration, found that in fiscal year 2014, the Taxpayer Assistance Centers had approximately 5.5 million taxpayer contacts, down 16 percent from the prior year.

 

The report reflects the IRS’s efforts to deal with a series of budget cuts and move more taxpayers to interact with the agency and get their questions answered by using its Web site and online applications. The report noted that the IRS’s fiscal year 2015 service approach continued from the prior year to identify and implement other opportunities for promoting online services so IRS staff would be available for taxpayers who required face-to-face assistance.

 

The purpose of the report was to examine how well the Taxpayer Assistance Centers were operating. TIGTA found that the 34 Taxpayer Assistance Centers its inspectors visited were generally clean, well-organized, uncluttered, and professional. At two locations, TIGTA observed people in long lines waiting for assistance; however, the lines did not prevent entry and egress to the buildings, and what TIGTA observed was orderly. Fewer forms were available than in previous years, but the IRS provided alternatives to obtain forms.

 

At seven of the locations, some of the employees were not wearing the required name tags, TIGTA found, and only 10 locations had the current versions of all the required signs displayed. The Taxpayer Assistance Centers generally completed the necessary follow-up procedures to ensure the delivery of all payments and taxpayer correspondence that were shipped to other IRS facilities. In most cases, according to the report, IRS employees adequately secured IRS stamps and the other material required for document authentication.

TIGTA made no recommendations in the report, and IRS officials had no response to a draft of the report they reviewed.

 

 

 

Viewpoint: Republicans' Latest Bad Idea Is Impeaching IRS Head

BY ALBERT R. HUNT

 

If the House Republicans' Benghazi investigation craters after former Secretary of State Hillary Clinton's testimony this week, the chamber's right-wing caucus has a sequel in mind: attempting the second impeachment of an executive branch appointee in 226 years.

 

The target is Internal Revenue Service Commissioner John Koskinen. The specifics of any supposed impeachable offenses are vague. Koskinen, 76, is a respected, successful business and government executive who, at the behest of the White House, took on the job of cleaning up the beleaguered tax agency in December 2013, after offenses had been committed.

 

Since 1789, the House has impeached 19 officials: two presidents, 15 judges, a senator in the 18th century. The only executive branch appointee was William Belknap, President Ulysses S. Grant's war secretary.

 

Now, the 40-member Freedom Caucus, which played a role in Speaker John Boehner's resignation, wants to try again. The House Oversight Committee, where proceedings would start, is stacked with right-wing Republicans.

 

The accusations stem from 2013, when the IRS's tax-exempt division was found to have disproportionately targeted conservative groups for scrutiny. Although Koskinen was brought in after the damage had been done, Ohio Representative Jim Jordan and his Freedom Caucus followers say he has tried to cover up some wrongdoing. Some, rather recklessly, accuse him of lying. The tax agency is unpopular and makes an appealing political target.

 

Democrats say the allegations against Koskinen are unfounded: "It is despicable character assassination," said Representative Gerald Connolly, a Virginia Democrat who serves on the Oversight Committee. "They are manufacturing a phony issue for ideological reasons."

 

The case has problems. The specific charges seem specious: There may have been miscommunication, but there is no evidence of wrongdoing by Koskinen.

 

Former Representative Dave Camp of Michigan, the Republican chairman of the House Ways and Means Committee from 2011 until this year and now a senior policy adviser at PricewaterhouseCoopers, said that while, to him, Koskinen "has been a disappointment" in terms of reforming at the troubled agency, "impeaching the IRS commissioner is not a tactic that will be successful." 

 

The pre-Koskinen abuses by the IRS's tax-exempt division have been the subject of three inquiries: First, a nine-month investigation by the Treasury's inspector general, a Republican appointed by President George W. Bush. The second was conducted by the Government Accountability Office and the third produced a bipartisan Senate Finance Committee report. All were critical of IRS mismanagement, but none found any evidence of illegal activities or political direction from on high.

 

New York Times investigation of the IRS's Cincinnati tax-exempt operations described an understaffed, bureaucratic, poorly led office, not one motivated by politics. Moreover, although the IRS was wrong to focus on conservative groups, the underlying skepticism about some applications for tax-exempt status was justified.

 

The Supreme Court's Citizens United decision, which allowed torrents of special interest money into campaigns, also encouraged groups to declare themselves principally social welfare organizations that dabble in politics. That designation made them eligible for favorable tax treatment with minimal disclosure requirements. Under pressure from Republicans, the IRS is pulling back from a push for stricter regulation of these groups.

 

A partisan impeachment probably would seem a foolish distraction from the real issues of jobs, health care, debt and terrorism. It could backfire in the same way as the impeachment of President Bill Clinton 17 years ago, the politically motivated government shutdowns and the fizzling Benghazi inquest is likely to.

 

The fight within the House Republican caucus reflects less an ideological split than the manifestation of an apocalyptic view from the right-wing minority that the political system has to be destroyed before it can be reformed. That justifies actions such as impeachment.

 

More than a few Republicans fear their colleagues would be making a huge mistake.

 

 

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

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